After a year of political surprises, we could see tectonic shifts in economic policy. Speculation, rightly, that major economies will open the fiscal box is causing ‘reflation trades’ to puff up growth assets & make the bull-run in government bonds look even staler.

Yet, while better for growth, markets may be ignoring the new global risk emerging. Rather than financial distrust, we may need to brace for political distrust, with the threat of beggar-thy-neighbour policies - from the US to Europe - rising.

Amid these conflicting growth forces, our macro outlook is based on six core beliefs. First, governments in 2017 will offer fiscal solutions to add stimulus, try to appease electorates, & take the policy ‘baton’ back from central banks.

Second, this comes on top of monetary expansion. Nine years after the first traces of crisis, yet central banks daren’t lift the tide of liquidity hiding the sharp rocks beneath. Real rates will stay negative, with peak rates lower, & central banks unable to turn off their liquidity taps without unintended consequences.

Third, once protectionist forces build, inflation will reappear. But, it will be the ‘wrong sort’ – cost, rather than demand-led. Central banks will ‘turn a blind’ eye as economies stagflate, meaning the inflationary flame may snuff itself out without policy action.

Fourth, China has the tools to soften its landing. But, fifth, for those non commodity-exporting emerging markets with high exposure to short-term USD debt/foreign saving needs, the outlook’s less rosy.

Finally, without convincing recoveries, any contagion (unlike 2008) may be political rather than fi nancial. EU exit-fears will spread with our exit taking longer than the three years needed by Greenland.

In which case, while reflation trades look appropriate in the short term, political disruption, protectionism, cost inflation, & dissipating growth suggest ‘lower for longer’ will have to persist.

So, chasing the ‘great rotation’ means taking on the central banks. Because, for more fiscally-active governments, initiating also the end of QE would be like a turkey voting for Christmas...